Jhansi Development Authority Versus The CIT-II, Agra (U.P.)

2016 (5) TMI 930 - ITAT AGRA

Registration granted to the assessee u/s 12A cancelled - assessee is a body corporate formed under UP Urban Planning and Development Act, 1973 - Held that:- The facts in the present case, we find, are identical to the facts in the case of Tamil Nadu Cricket Association (2013 (12) TMI 833 - MADRAS HIGH COURT ). In the present case the assessee had been granted registration u/s 12AA after considering its stated objects. Undeniably there has been no change in the objects of the assessee. The regist .....

gistration granted earlier under section 12A of the Act, and that the Ld. CIT had erred in holding that the activities of the assessee were not genuine since it was not charitable in view of the first proviso to section 2(15) of the Act.

The applicability of the proviso will have to be examined every year and thus cannot be the basis of granting or cancelling registration u/s 12AA. Moreover, the legislature has provided a safeguard against the objects being vitiated on account of the .....

be impacted by the object being hit by the first proviso to section 2(15).

The grant of registration u/s 12AA(1)(b) requires satisfaction about the objects of the trust as well as genuineness of the activities, while for cancellation u/s 12AA(3) all that is insisted upon is the satisfaction as to whether the activities of the trust or institution are genuine or not and whether the activities are being carried on in accordance with the objects of the trust. Further we find that on the .....

g, engineering, mining and other operations, to execute works in connection with the supply of water and electricity, to dispose of sewage and to provide and maintain other services and amenities and generally to do anything necessary or expedient for purposes of such development and for purposes incidental thereto. 2. The assessee had applied for registration on 02/03/2007, under section 12A which was rejected by the then Commissioner vide order dt. 27.09.2007. When the order declining registra .....

ing on of any activity in the nature of trade, commerce or business. The Ld. CIT held that the activities carried out by the assessee were in the nature of commerce or business and therefore fell under the exclusion provided in the first proviso to section 2(15). He therefore, held that the activities of the assessee were not for charitable purpose and hence not genuine. He therefore cancelled the registration granted to the assessee u/s 12A by exercising his powers u/s 12AA(3) of the Act. 3. Ag .....

U/s 12AA(3) is bad in law. The order of Ld. CIT-II is based on incorrect facts, findings and utter disregard to the established judicial precedence. 3. That, having regard to the facts and circumstances of the case, Ld. CIT-II grossly erred both in law and facts by canceling registration u/s 12AA(3) in the light of amendment in section 2(15) of the I.T. Act. The order passed by the Ld. CIT-II is contrary to the circular issued by CBDT. 4. That, having regard to the facts and circumstances of the .....

gard to the facts and circumstances, the impougned order U/s 12AA(3) passed by the Ld. CIT-II is patently invalid, contrary to provision of law, contrary to all canons of natural justice and is void abinitio. 6. That, having regard to the facts and circumstances of the case, the Ld. CIT-II grossly erred in law and on facts in holding that the appellant is doing the activities for a cess or fee and as such its activities are in the nature of trade and business. The findings are patently wrong and .....

tated in all the grounds raised, the assessee has agitated against the cancellation of registration under section 12AA(3) of the Act. 5. Before us Ld. AR argued at length, the gist of his arguments being that the power of cancellation of registration u/s 12AA(3) can be exercised only when the Ld.CIT is satisfied that the activities of the trust or institution are not genuine or are not being carried out in accordance with the objects as available at the time of grant of registration. The proviso .....

ion 2(15) were not charitable in nature. The activities therefore, could not be said to be genuine and the registration was rightly cancelled u/s 12AA(3) by the commission. Ld. DR relied upon the following case laws in support of its contention. 1. Jammu Development Authority [2012] 23 taxmann.com 343 (Amritsar) dated 14.06.2012 2. Jammu Development Vs. UOI & anr. (ITA No. 164 of 2012 dated 07.11.2013) (HC of J&K) 3. Jalandhar Development Authority Vs. CIT [2010] 35 SOT 15 (ASR) (URO) da .....

lation of registration already granted can be invoked only when (1) the activities of the trust are not genuine and (ii) the activities are not being carried on in accordance with the objects of the trust. In the present case, the CIT has held that both the conditions for cancelling registration are fulfilled since the assessee has been found to be carrying on activities in the nature of business and commerce and on account of the first proviso to section 2(15) the activities are no longer chari .....

Hon ble High Court held that cancellation of Registration granted under section 12A could only be in terms of section 12AA(3) of the Income Tax Act, as per which if the Commissioner is satisfied that the activities of the institution are not genuine or they are not carried on in accordance with the trust / institution he could pass an order in writing cancelling the registration of such trust or institution. Thereafter, the Hon ble High Court held that the power of cancellation has to be seen wi .....

that at the time of grant of registration on 28.03.2003, the same was made taking into consideration the objects of the institution fitting in with the definition of charitable purpose defined under Section 2(15) of the Act and the substitution of the Section itself came only 2008, with effect from 01.04.2009. As rightly pointed out by the learned senior counsel appearing for the assessee, the circular clearly brings out the object of the amendment and the amended provisions has no relevance to .....

ommercial in nature, as had been found by the Income Tax Appellate Tribunal, the objects of the trust ceased to be charitable. He submitted that going by the definition of Section 2(15) of the Act, rightly, the Commissioner assumed jurisdiction under Section 12AA(3) of the Act to cancel the registration. He further pointed out that for the finding to be recorded that the activities of the trust are not genuine, one must necessarily look into the objects of the association; if the objects of the .....

ion was liable to be withdrawn. 45. We do not accept the submission of learned Standing counsel appearing for the Revenue. As rightly observed by learned Senior counsel appearing for the assessee, the Revenue granted registration under Section 12AA of the Act satisfying itself as to the objects of the association befitting the status as charitable purpose as defined under Section 2(15), as it stood in 2003 and after granting the registration, if the registration is to be canceled, it must be onl .....

sing Officer to consider the effect of Section 11 of the Act in the matter of granting exemption on particular head of receipt. The mere fact that the said income does not fit in with Section 11 of the Act would not, by itself, herein lead to the conclusion that the registration granted under Section 12AA is bad and hence, to be cancelled. 48. It is no doubt true that the decision reported in the case of Surat City Gymkhana (supra) was in the context of Section 10(23) of the Income Tax Act, 1961 .....

ing on the activities are not in accordance with the objects of the trust, the assessee s income, at best, may not get the exemption under Section 11 of the Act. But this, by itself, does not result in straight rejection of the registration as trust under Section 12AA of the Act. Consequently, we reject the prayer of the Revenue that Section 12AA(1) of the Income Tax Act, 1961 must be read along with Section 12AA(3) of the Income Tax Act, 1961 before considering the cancellation. The Hon ble Hig .....

e read alongwith Section 12AA(3). The court held at para 48 of its order as follows: 48. It is no doubt true that the decision reported in the case of Surat City Gymkhana (supra) was in the context of Section 10(23) of the Income Tax Act, 1961, nevertheless, the fact remains that the understanding of the scope of the expression general public utility would nevertheless is of relevance herein. Admittedly when the assessee was granted registration, the Revenue recorded its satisfaction that the ob .....

ection 12AA of the Act. Consequently, we reject the prayer of the Revenue that Section 12AA(1) of the Income Tax Act, 1961 must be read along with Section 12AA(3) of the Income Tax Act, 1961 before considering the cancellation. The court further held at para 51 of its order that the question whether a particular income (being income from holding of maches in the impugned case) qualified under section 11 of the Act was not the same as the activity being genuine or not and which was the issue to b .....

h the objects of the Association and the dominant activities were in the nature of trade, commerce, and business. The court further held that volume of activity along would not lead to the inference that it was commercial in nature. Thus the Hon ble High Court held that the Revenue had not made out any ground to cancel registration. The court held at par 45 and 56 of its order as follows. 45. We do not accept the submission of learned Standing counsel appearing for the Revenue. As rightly observ .....

e law then stood under the definition of Section 2(15) of the Income Tax Act. Even therein, Courts have defined as to when an institution could be held as one for advancement of any other object of general public utility. Thus, if a particular activity of the institution appeared to be commercial in character, and it is not dominant, then it is for the Assessing Officer to consider the effect of Section 11 of the Act in the matter of granting exemption on particular head of receipt. The mere fac .....

eir stadia. The franchisees conduct matches in the Stadia belonging to the State Cricket Association. The State Association is entitled to all in-stadia sponsorship advertisement and beverage revenue and it incurs expenses for the conduct of the matches. BCCI earns revenue by way of sponsorship and media rights as well as franchisee revenue for IPL and it distributes 70% of the revenue to the member cricket association. Thus the assessee is also the recipient of the revenue. Thus, for invoking S .....

s own impression on free ticket, payment of entertainment tax and presence of cheer group and given the irrelevant consideration. These considerations are not germane in considering the question as to whether the activities are genuine or carried on in accordance with the objects of the Association. We can only say that the Income Tax Appellate Tribunal rested its decision on consideration which are not relevant for considering the test specified under Section 12AA(3) to impose commercial charac .....

he registration has been later on cancelled only on account of the proviso to section 2(15). It is not the case of the Ld. CIT that the activities are not being carried out in accordance with the objects of the assessee trust on the basis of which registration was granted under section 12A. Thus we find that the decision of the Hon ble Madras High Court squarely applies to the case of the assessee. We therefore hold that the amendment to section 2(15) of the Act cannot be the basis for cancellat .....

the provision of section 2(15) and its provisos would reveal that the disabling clause comes into play not only on account of the nature of the activity but also the level of activity which may vary from year to year, attracting the proviso in one year and remaining out of its purview in another. Thus, the applicability of the proviso will have to be examined every year and thus cannot be the basis of granting or cancelling registration u/s 12AA. Moreover, the legislature has provided a safeguar .....

y to this legal position, registration u/s 12AA cannot be impacted by the object being hit by the first proviso to section 2(15). This view has been upheld by the Amritsar Bench of ITAT in the case of Kapurthala Development Trust Vs. CIT in ITA No 732 of 2013 dt. 11/06/2015 wherein it was held as follows: 10. There is, however, a much more fundamental a reason for the assessee succeeding in this appeal. In our considered view, the considerations with respect to the first proviso to Section 2(15) .....

the matter. 11. Let us begin by taking a look at Section 2(15) which defines charitable activities and first and second provisos thereto. These statutory provisions are as follows: (15) "charitable purpose" includes relief of the poor, education, medical relief, preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest,] and the advancement of any other object of general public utility: P .....

ggregate value of the receipts from the activities referred to therein is twenty-five lakh rupees or less in the previous year; (Emphasis by underlining supplied by us) 12. What is clear from the riders in the above definition of chartable purposes is that rider set out therein, under first proviso to Section 2(15), can only come into play I.T.A. No. 732 (Asr) of 2013 Assessment year: 2009-10 Page 8 of 12 on year to year basis and not in absolute terms. The same activity can be hit by this rider .....

haracter of charitable activities is concerned, is inbuilt in the provisions of Section 13(8) which was brought into effect with effect from the same point of time when proviso to Section 2(15) was introduced - i.e. with effect from 1st April 2009. Section 13(8) provides as follows: Section 13- Section 11 not to apply in certain cases. ……………. (8) Nothing contained in section 11 or section 12 shall operate so as to exclude any income from the total income of the .....

fied threshold Sections 11 and 12 of the Act exempt income of any charitable trust or institution, if such income is applied for charitable purposes in India and such institution is registered under section 12AA of the Act. …………... Section 2(15) of the Act provides definition of charitable purpose. It includes advancement of any other object of general public utility as charitable purpose provided that it does not involve carrying on of any activity in the nature of t .....

ngly, the benefits of exemption shall be available to it. Thus, a I.T.A. No. 732 (Asr) of 2013 Assessment year: 2009-10 Page 9 of 12 charitable trust or institution pursuing advancement of object of general public utility may be a charitable trust in one year and not a charitable trust in another year depending on the aggregate value of receipts from commercial activities. There is, therefore, need to expressly provide in law that no exemption would be available for a previous year, to a trust o .....

of first proviso on account of commercial receipt threshold provided in second proviso in a previous year. Then, such trust or institution would not be entitled to get benefit of exemption in respect of its income for that previous year for which such proviso is applicable. Such denial of exemption shall be mandatory by operation of law and would not be dependent on any withdrawal of approval or cancellation of registration or a notification being rescinded. It is, therefore, proposed to amend & .....

mphasis by underling supplied by us) 14. It is thus clear that the impact of the proviso to Section 2(15) being hit by the assessee will be that, to that extent, the assessee will not be eligible for exemption under section 11 of the Act. The mere fact that the assessee is granted registration under section 12 A or 12AA as a charitable institution will have no bearing on this denial of registration. As a corollary to this legal position, the fact that the objects of the assessee may be hit by th .....

ve lakh rupees or less in the previous year . Clearly, therefore, in order that the benefits under section 11 are declined to the assessee on the ground I.T.A. No. 732 (Asr) of 2013 Assessment year: 2009-10 Page 10 of 12 that it is engaged in such activities as may be hit by the first proviso to Section 2(15), not only the assessee must be engaged in carrying out such activities as may hit the first proviso to Section 2(15) but also the receipts of the assessee from such activities must exceed a .....

irst proviso to Section 2(15) lies not in grant, decline or withdrawal of registration but in declining the benefits of exemption under section 11 on that count, on year to year basis, notwithstanding the status of registration. 16. The scheme of the Act, in this respect, is thus clear. The status of registration under section 12A or 12AA has no bearing, as recognized in Section 13(8), on the availability of exemption under section 11. To the extent income of the assessee arises from the activit .....

t of which the first proviso to Section 2(15) is triggered. 17. If the status of registration is to be declined to an assessee only on the ground that some of the objects may be hit by the first proviso to Section 2(15) but the assessee s receipts from such activities donot exceed specified threshold in a particular assessment year, the assessee will be subjected to undue hardship in the sense that while the assessee will be disentitled to exemption under section 11 due to denial of registration .....

e status of registration and by the virtue of section 13(8), the assessee will not be eligible for exemption under section 11 in respect of such income. It is only elementary that a statutory provision is to be interpreted ut res magis valeat quam pereat, i.e., to make it workable rather than redundant. 18. The considerations about the possibilities of the first proviso to Section 2(15) coming into play affecting the grant, decline or withdrawal of registration under section 12AA will thus lead .....

which are not at all relevant in the context of registration status under section 12A or 12AA of the Act. For this reason also, the action of the learned Commissioner is wholly devoid of any legally sustainable merits. 12. In view of the above also, we hold that the action of the Ld. CIT in cancelling the registration is not as per law. 13. The case laws relied upon by the Ld. DR have no relevance since they are distinguishable on facts. In the case of Jammu Development Authority [2012] 23 taxm .....

n law had occurred which could not be allowed to be perpetuated and hence the registration was cancelled. In the present case the facts are totally distinguishable since, when registration under section 12AA was granted in the impugned case the provision to section 2(15)was not on the statute and the Hon ble Madras High Court in the case of Tamil Nadu Cricket Association (supra) has categorically held that power regarding cancellation has to be seen with reference to the registration and the obj .....